Middle East tension troubles market, analysts hope for calm

Indian investors saw their wealth eroded by ₹5.25 trillion on profit booking due to uncertainty in the Middle East, after Iran’s overnight strikes on Israel on Sunday.

However, the GIFT Nifty was in the green at 22,426.50 at the time of writing, indicating a 154-point bump up for the Nifty at opening on Tuesday, on hopes of de-escalation and an above-normal monsoon.

GIFT Nifty trades for 21 hours. Before this, the Nifty and Sensex fell over a per cent each to 22,272.50 and 73,399.78 as the fear gauge India VIX surged 8.1% to 12.47, the most in two-and-a-half months.

The VIX rises when uncertainty increases and vice versa.

FPIs net sold shares worth a provisional ₹3,268 crore on Monday, while retail investors and high net-worth individuals (HNIs) trading directly sold ₹768 crore on the BSE (data on NSE was not available). DIIs net purchased shares worth ₹4,762.93 crore.

In addition to cash market sales , FPIs sold index futures worth ₹3,850 crore.

However, despite Monday’s fall, most market analysts believe calm will be restored with global leaders calling for restraint from both sides.

They said that rather than being exposed to huge losses, the investor sell-off was due to a desire to protect their profits.

“The events of the past few days in the Middle East are unlikely to have a material impact on Indian markets as we are somewhat insulated from the broader level economic point of view,” said A. Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC.

“There will be a bit of uncertainty, but not deep enough for us to be worried. Rather than causing losses, the fall has resulted in profits being reduced as most investors are deep in-the-money.”

Shankar Sharma, founder of GQuant Investech, agreed. “Additional mini-wars will not have much effect on the markets whether in India or globally. The markets were severely affected by the first war in the last three years which was the Russia Ukraine war,” he said.

In another plus for the market, the India Meteorological Department (IMD) forecast post markets that India was likely to experience above-average rains, which could boost investor sentiment amid rising US bond yields, according to Rohit Srivastava, founder, IndiaCharts, as a good monsoon raises rural demand.

Incidentally, Brent crude futures contract traded down 1% at $89.74 a barrel at the time of writing.